Sterling extended its losing streak on Monday, hitting record lows against the euro and 28-month lows against the dollar after the UK finance minister said the economic outlook was its most challenging in 60 years. Dismal housing data from property consultants Hometrack and Bank of England figures showing mortgage approvals at a series low in July compounded gloom about economy outlook and also undermined the pound.
"The data shows no sign of improving and while that continues people will bring forward the possible timing of the first BoE (Bank of England) rate cut," RBS currency strategist Paul Robson said. Sterling lost even more ground late in the European session, sliding below $1.80 for the first time since April 2006 as a revived dollar hit 2008 highs when oil prices slid on news that Hurricane Gustav had been downgraded to Category 2 status.
By 1427 GMT, the euro was up 0.4 percent on the day at 80.91 pence, having earlier hit a record high of 81.40 pence. Sterling hit its lowest since April 2006 against the dollar at $1.7996. Trade-weighted sterling, which tracks the currency's performance against those of the UK's major trading partners, slid to 88.8, its weakest since October 1996.
A seemingly relentless tide of disappointing data on almost all aspects of the economy including housing, retail sales and economic growth grinding to a halt in the second quarter has stoked concern that British economy is tipping into a recession.
Hometrack said house prices fell for the 11th consecutive month in August to stand 5.3 percent lower than a year earlier, in the biggest annual fall since the survey began in 2001. Sterling fell 8.6 percent against the dollar in August, putting in its worst monthly performance since October 1992, when the currency crashed out of the European Exchange Rate Mechanism.
Analysts say sterling is suffering not only on the view the UK economy will continue to lose momentum, but also because domestic weakness could be exacerbated by a downturn in the euro zone economy. Comments from BoE policymaker David Blanchflower last week also remain in focus as markets speculate about what increasingly weak economic forecasts will mean for the timing of UK interest rate cuts.